Tesla takes on a new kind of troll in China

Tesla Motors CEO Elon Musk is famous for bucking the patent trends of the United States, and now his company is bumping up against a sticky intellectual property situation in China as well.

The electric vehicle company made shockwaves in June when it announced that it would take a page out of the open source playbook and stop enforcing the patents it holds in the United States. The policy, according to Musk, is intended to encourage technological progress and strengthen the company. The announcement was viewed with skepticism in a time when companies are increasingly defensive – and litigious – about their intellectual property, especially patents. This move is seen as a shot across the bow of litigation-hungry entities, especially patent trolls.

While companies in the United States, known as patent trolls, have made a name for themselves by snatching up patents and using them as blunt instruments in litigation, a different phenomenon has cropped up in China, where Tesla has run into a different species of troll.

In China, trademark trolls are notorious for squatting on trademarks that companies from other countries – especially the US – might use when they finally get around to expanding their business to China. In this vein, a Chinese man, Zhan Baosheng, registered the trademark for Tesla in China years ago, and he took Musk’s company to court over the IP.

Now, though, the two parties seem to have settled their dispute. Zhan has agreed to cancel his trademarks at no cost to Tesla and Tesla has agreed not to pursue legal action against Zhan. The matter has resolved itself to the benefit of Tesla, but it demonstrates a key problem with China’s “first to file” policy regarding trademarks, which tends to encourage these squatters. Other American companies have run into the problem as well and would love to see China reform this troublesome policy.